Filing Income Tax Returns for the AY 2022-23: Mistakes to be avoided

 

“If you think that compliance is Expensive, Try Non-Compliance”.  – Paul McNulty

The income tax returns for the AY 2022-23 have been very timely announced by the CBDT. Even if the due date is far away, it is always advisable to start the process of compiling the information earlier. Last moment compilation and filing often result in errors & mistakes which may have different penal consequences. Taxpayers must take precautions while filing income tax returns so as to avoid subsequent income tax notices. Following are some of the precautions which taxpayers must consider while filing income tax returns:

1. CBDT has not changed the criteria as to the applicability of ITR forms for AY 2022-23 & it is same as that of AY 2021-22. Selecting the correct form of Income Tax Return for filing income tax is very relevant for proper reporting. There are 7 returns forms for filing income tax returns of which ITR-5 is for AOP/Firms, ITR-6 is for Corporate Assessee and ITR-7 is for Trust. ITR 1 to ITR-4 are for individuals/HUF.
   Taxpayers need to be careful in selecting the ITR forms as improper forms may lead to incomplete information submission. Change in the ITR forms has become an annual feature and taxpayers should read the instructions about its applicability before filing it.  Taxpayers may refer to The Tax Talk dated 14.04.2022 to know about the changes in the ITR forms for the AY 2022-23.
2. Taxpayers must note that under-reporting of income attracts 50% of the tax amount as penalty whereas it will be 200% if the under-reporting of income is a result of mis-reporting of income. Casualness in filing income tax returns often results in either under-report or misreporting of income.
   Taxpayers need to be more cautious so as to incorporate all income, even exempt income, in the ITR forms. Various incomes like Interest of Saving bank account, FDR interest income, Minor’s income which is required to be clubbed with the income of the parents, etc are often ignored by the taxpayers while filing income tax returns. Similarly, exempt income like LIC Money back, PPF Interest, etc are ignored by taxpayers for the reason that it is tax neutral. However, proper reporting of exempt income serves the dual purpose, first it provides the evidence of subsequent investments by the taxpayers & second, it results in avoidance of notice by the department. Similarly, taxpayers need to offer not only actual income for taxation but also notional income like deemed rental income if taxpayers own more than one house property, gift from non relative if the amount exceeds Rs. 50,000/-, etc.
3. The practice of enclosing documents with the ITR forms has been done away with & now no documents are required to be submitted/ attached with the ITR. The deductions/exemptions/incentives are abruptly granted to the taxpayers without documentary evidence. Few taxpayers claim more deductions/exemptions even though the same is not legally allowable. It may be noted that taxmen have the right to call for the documents /records for verification. With the artificial intelligence inbuilt in the IT system of the income tax department, there are chances of cross verification of various data in a routine manner. Taxpayers should avoid temptation to evade taxes by making false claims towards deductions & exemptions. Even genuine mistakes in claiming deduction can lead to serious penal consequences. For example, investment in tax saving mutual funds (ELSS) & not all mutual funds is eligible for deduction u/s 80C. Be careful & make claims for genuine deductions only.
4. The Income tax department has a very transparent mechanism as far as the Tax credit & various other information of the taxpayers are concerned.  Various details are reflected in Form 26AS & AIS. Taxpayers should invariably check 26AS & AIS before filing the income tax return.  26AS shows entries of TDS, advance-tax, income tax refund, AIR etc during the year. Any discrepancies in Form 26AS/AIS like wrong TDS credit or TDS credit not pertaining to taxpayers, investments etc should be notified immediately to the deductor/Reporting agencies & get it rectified. While processing the return, the Income Tax Department totally relies on 26AS & denies credit of TDS claimed in ITR if it is missing in Form 26AS. Further, if any entry is available in Form 26AS which is missing in the ITR filed, a tax notice is issued seeking reason for not reporting it in ITR.
5. Taxpayers must avoid the temptation to make false or wrong claims in the ITR forms so as to save tax by fraudulent means. Even if the wrong claim or bogus deduction is abated by third person, taxpayers cannot plead ignorance. Don’t fall prey to such people or advertisements like file returns for Rs. 100/- etc. Choose the right hand if not able to self file the return.
6. In various cases, income tax returns though filed timely & properly, get invalidated if it remains unverified after filing. Uploading ITR is not the end of responsibilities. Rather, actual work starts only after filling it. After filing the return, taxpayers have to send the signed copy of acknowledgement (ITR V) to CPC, Bengaluru or have to e-verify it. E-verification is also an easy option if returns are filed by taxpayers themselves. At the cost of repetition let me mention that if the return remains unverified, it is treated as null and void.
7. Dividend income has been made taxable. Taxpayers must ensure to report the income by way of dividend in the income tax returns.

Conclusions:

Statistics show that a major chunk of returns are filed in the last fortnight. In a few cases, there are genuine reasons for the delay like non availability of the updated Annual Information Statement (AIS), TDS credit in 26AS, delay in the investment in 54EC bonds or capital gain deposit account scheme, etc. One needs to understand that Software, servers, systems, professionals have their own limitations & priorities. There are instances where the penalty is imposed even due to the failure at the portal of the income tax department. One of the biggest mistakes committed by the taxpayers is “Waiting for the last minutes” or “waiting for date extension” for filing income tax returns.  One must recall the famous tax quote by Milton Berle –

“I just filled out my income tax forms. Who says you can’t get killed by a blank?”

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